MW Options positions and strategies suggest selling could intensity if S&P 500 falls toward 6,500 next week
By Jules Rimmer
UBS thinks CTA positioning will exaggerate any downward movement.
Option markets become extremely active around expiry on the third Friday of each month.
Between now and the next major U.S. option expiry next week, there are a trifecta of hugely significant evets - and the way certain investors are positioned, a gap lower could trigger even more selling.
The options expiry is on Dec. 19, and starting with the Fed decision on Wednesday, there also are two other notable events coming in the release of nonfarm payrolls on Dec. 16 and the consumer price index on Dec. 18.
Analysts at UBS say that given positioning and the number of open options contracts outstanding, a downward move in the S&P 500 SPX to 6,500 - just 5% or so below the current levels - could trigger a much more dangerous inflection point lower.
UBS has built a proprietary model to predict activity by macro hedge funds into option expiry and they anticipate major sensitivity around the 6850 level on the S&P 500. If the market starts to decline towards 6,500, their model suggests that commodity trading advisors, or CTAs, are skewed toward selling and outflows would accelerate.
The Dec. 19 expiry option captures a lot of risk events. Options strikes suggest the uncertainty is at its peak with big notional traded at 5000, 6000, 6850 and 8000 levels on the S&P 500.
CTAs are systematic macro hedge funds using sophisticated algorithms to predict asset price direction. They are essentially momentum players, jumping on market trends. Their size means the bets they place are hugely impactful.
Given the nature of delta hedging options, their activity, especially when approaching option expiry, can amplify or exaggerate market moves significantly. The model built by UBS aims to mimic the trading strategies of CTAs, taking into account the volume and strike prices of their options portfolio and their positioning.
Most options are struck with an expiry on the third Friday of the month and December's expiry is especially important because it's the end of the quarter and the year also. UBS detects large contracts around the 5,000, 6,000, 6,850 and 8,000 levels on the S&P 500 SPX.
UBS calculates CTAs are skewed towards selling, having reloaded with risk of late. If the index begins to decline towards 6,500, CTAs will be obliged to offset that directional risk by selling more and more futures as it falls.
On the Eurostoxx 50 index XX:SX5E, currently trading around the 5700 level, UBS finds CTAs are very long and if the index were to slump towards the 5600 then selling could intensify.
Other notable exposures that could become important include CTAs being back to almost max short the Japanese yen (USDJPY), which could be very volatile around the time of the next Bank of Japan rate on Dec. 19, long positioning on the Chinese yuan (USDCNY). They also have some concerns about long positioning in U.S. 10-year bonds BX:TMUBMUSD10Y if yields were to back up towards 4.25%.
-Jules Rimmer
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December 10, 2025 05:29 ET (10:29 GMT)
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